TOP 15 TIPS TO TEACH YOUR CHILDREN ABOUT MONEY
Teaching children about money is hard and the greater your wealth, the harder it seems to be. Broaching the subject of the family’s wealth seems to be a conversation which parents invariably put off having with their children for as long as possible.
As with many things in life, starting with the basics can be a great help. Here are 15 tips I wish someone had told me as a young adult.
It doesn’t matter how much you earn. If you spend all or more than you earn, you’ll always be poor.
Your financial security is the most important priority when it comes to devising a personal expenditure budget, before rent, travel, socialising etc… Prioritise regular saving, even if it’s only a few pounds a week, as the first expense that you need to meet.
Whatever the reasons for which you borrow money, remember two things: interest is a definite regular cost that will reduce your ability to save and the capital must eventually be repaid.
The technology company Apple has made a virtue out of simplicity and it drives everything it does. You should adopt the same mindset to your personal financial planning and keep things as simple as possible.
If anyone tells you that they have a sure bet investment that is virtually risk-free and will generate a 10% return in a short time period, and it looks as though they actually mean or believe what they are saying, you need to give them a wide berth. If it looks too good to be true… it probably is.
Remember Bernie Madoff?
A certain amount of tax is necessary for any decent society to operate in a fair and equitable manner. Minimise your tax bill by using all the legitimate and tried and tested products and solutions available but not to such an extent that you don’t have enough money to live on today.
The media, in the form of newspapers, 24-hour news, websites or magazines, is not designed to help you to make good decisions. It focuses on what personal finance professionals call ‘noise’ or ‘financial pornography’ in the form of negative stories or sensationalist ‘get rich quick’ ideas because they are newsworthy. In general the news is not the truth but a form of entertainment (and, in many cases, a business seeking to turn a profit), so remember that when forming your opinions about money.
There is no evidence to support the commonly voiced (usually by those with an interest in the outcome) assertion that it is better to buy an expensive investment fund than a similar lower cost one. As Vanguard founder John Bogle said of investing, “You get what you don’t pay for”.
Having a cash reserve available is essential to enable you to cope with the inevitable ups and downs that arise in life. Three to six months’ expenditure is ideal for most people but you may want or need more depending on your circumstances.
At the beginning of your working life your greatest asset is your ability to earn an income. Income protection insurance will keep paying you a proportion of your earned income until you can return to work or reach a certain age.
Increasing your relevant skills and knowledge is the best way to increase your earning power. Therefore, looking for ways to invest in your capability, whether that’s night school, distance learning or day release by your employer, makes a lot of sense.
If you are offered the chance (and with auto-enrolment, you will be) to join an employer-sponsored pension scheme, then do so, or start your own if you are self-employed. The earliest contributions make the most growth and can make the difference between a decent retirement income or not. Although these funds can’t currently be accessed until age 55, that might actually be a good thing!
Although buying your own home generally makes more sense than renting over the long term, avoid rushing in to buy a house until you have established your earning power, know where you want to live (which may be dictated by your work) and have a clearer idea of who, if anyone, will be your life partner. Buying and selling properties is an expensive business and if you have to sell at a time when the value of the property has fallen and your equity is reduced, it can set you back years.
An interest-free loan from your family is the cheapest form of borrowing and payday loans are the most expensive. As a general rule you should avoid, or repay, debt as fast as possible, starting with the most expensive debt first.
Assuming that you have followed all the previous suggested actions above, you should then invest the bulk of any surplus income, plus your pension fund, into worldwide equities and leave it there whatever happens in the markets — when prices fall, as they will, you will buy assets more cheaply and that will help you in the long term.
What tips have you passed on to your children?